With mortgage rates still at historical lows and the future uncertain, many homeowners are clamoring to refinance. After all, it could save them hundreds of dollars a month and thousands upon thousands over the life of their loan.
Who wouldn’t want that?
Still, low rates don’t automatically mean a good refi deal is in the cards. In fact, refinance offers can vary greatly. Even those with the same rates can look starkly different, and if you’re not careful to analyze all the details – both big and small, you could end up with a whole lot of a hassle and not a lot of benefit (or any benefit at all, for that matter.)
Want to make sure you’re not buying into a bad refinance deal? Here’s how to do it:
Look beyond the rate you’re getting, and get a full breakdown of all the fees, costs and other expenses you’ll be responsible as part of your refinance. Just like with your original mortgage application, you’ll have closing costs to cover, as well as several other fees and line items, and these will vary from lender to lender. Some lenders will even hide extra costs in there to make up for their super-low rates, so make sure to get a full estimate of all the loan’s costs from each lender you consider. If anything looks fishy or superfluous, it probably is – so run for the hills.
How long will it take your refinance to pay for itself? If you pay $3,000 in fees and closing costs and save $75 each month, it will be about 40 months before you’ve broken even. Do you plan on staying in the home for 40 months? If not, it might not be the best use of your time and resources. Shop around for a better deal that will require less pay-off time or will give you bigger savings.
Refinancing isn’t just about getting a new rate. You’re likely getting a new lender, too, and that means you need to pay extra attention to the service and care you’re given as you going about your refi research. Are the mortgage advisors responsive and helpful? Are your calls returned in a timely manner? Are they clear about what you’ll owe and when you’ll need to pay it? If you’re getting the run-around now – when they don’t even have your business yet, you can certainly expect the poor service to continue once they have your money. Steer clear!
Is anyone telling you that you can “skip a payment” or that you don’t have to pay your first installment just yet? Consider it a red flag. When it comes to a big loan like a mortgage, there’s no such thing as a skipped payment. The longer you put off payments, the more you pay in interest, so technically, “skipping” a $1,000 payment could result in $4,000 more in interest over the course of your loan. The trade-off definitely isn’t worth it – and any lender worth their salt knows it.
Just because a lender can offer a bargain-basement rate doesn’t necessarily mean you’ll get it. Remember, your rate will always rely on your credit score and financial history. And unless you have picture-perfect credit, you’re probably not going to get the top-shelf price that lender is trying to draw you in with. Make sure to do your research, study up on the latest rates and pull your credit report before applying for your refi. Get an idea of what rate you’ll likely qualify for, and if a loan officer quotes you something significantly lower than that, consider it too good to be true.
A refinance can be a great financial move – as long as you pay attention. Choose the right mortgage advisor, get a clear picture of every cost you’ll be responsible for, and know what your break-even point is, and your refi could save you a significant amount of cash in the long haul. Get in touch with SnapFi to see how we can help.